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Morningstar Credit Research

Phone: 800 549-9585Access Code: 8099010*6 Mute line*7 Unmute line

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Morningstar’s Equity and Credit Research Staff

× 80 Equity Analysts × Organized into eight sector teams (Industrials, Consumer, Energy, Banks, etc.)× Each analyst is an industry specialist, covering 20-25 companies× Main analyst research duties: field research, analyst notes and reports, five

years of detailed financial modeling

× 10 Credit Analysts× Sector specialists, embedded within each sector team× Primary voting members of Credit Rating Committee× Surface bond investment ideas from across their sector

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Industry Specialization

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Equity and Credit Analysts Work In Tandem

× Equity Analyst× Conducts primary research on the firm× Analyzes competitive position, works with Equity Strategists to assign Economic Moat rating (e.g., Narrow)× Writes company report, including assessment of financial health and capital structure× Builds DCF model, including five years of explicit forecasts× Determines equity fair value estimate and Uncertainty rating; has primary responsibility for the stock call× Participates in discussing company with the Credit Committee

× Credit Analyst× Reads equity analyst’s research× Works with equity analyst to hone the debt analysis in the model, including the Cash Flow Cushion and Business Risk assessment× Acts as a voting member of the Credit Committee for firms within sector× Writes credit initiation note× Monitors credit ratings for all firms within sector× Mines the sector for investment ideas among bonds of Industrial firms× Publishes bond investment idea lists and additional commentary on credit opportunities in the sector

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Comprehensive Coverage

By market cap:

By industry:

74121

65114

182175166333

512 741 599

As of: May 2010

164232146

80

666

Our Approach: Equity and Credit Research

× We evaluate stocks as small pieces of a business. We evaluate debt as a claim on a company’s future cash flows.

× We do primary research, formulating our own opinions by reading financial filings & trade journals, visiting companies, talking to competitors & customers, and attending industry conferences.

× We have a long-term perspective. × Our recommendations are driven by valuation, but we are not “value investors” in

the most traditional sense. × We believe that competitive advantages–“economic moats”–are key from both

an equity and credit perspective, and we rigorously assess the competitive position of the companies we cover.

× We believe that the ability of a business to generate ROIC above cost of capital is the primary test of value creation.

× We use scenario analysis to analyze upside and downside cases, as well as to challenge our own assumptions.

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Differentiators: Our Value Proposition in Credit Research× Independence

× We don’t have an issuer-pay model× We’re focused on the investor

× Depth× We have full cash-flow models on each company, which include 5-year forecasted income

statements, balance sheets, and cash-flow statements× We build off the industry and company knowledge we’ve acquired over the past 10 years in

equity research× Breadth

× We’ll cover the companies bond investors care about× Our coverage will be broader than any other independent provider

× Proven Philosophy× Focus on Economic Moats and free cash flows× Scenario Analysis and the “cone of possibilities”× Unique combination of qualitative and quantitative measures

× Timeliness× Our credit ratings include market-based measures (distance to default), which reflects the

latest information× Our forecasts and models are updated at least quarterly

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Morningstar’s Credit Coverage (as of 9/15/10)

Issuer Ratings

Investment Grade

Speculative Grade

Consumer 103 72 31

Industrials 91 60 31

Healthcare 61 48 13

Banks 49 45 4

Energy 59 48 11

Tech & Telecom 58 45 13

Business & Fin Services 38 31 7

Basic Materials 48 29 19

Total 507 378 129

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Morningstar’s Corporate Credit Rating Process

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Four Scores that Determine the Morningstar Credit Rating

× Business Risk × Economic Moat, Uncertainty, Stewardship× Size, Concentration, Dependence on Capital Markets

× Cash-Flow Cushion ™× Based on our proprietary cash-flow models. Uses our five-year forecasts of cash

flow, and compares that to debt coming due× No one else has systematic cash-flow forecasts that they can compare with debt

coming due× Solvency Score ™

× Based on equation we derived from historical backtesting× Four variables: leverage, interest coverage, liquidity, and profitability

× Distance to Default× Market-based measure of financial health× Academically tested

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Morningstar Credit Ratings for Banks

× Business Risk × Economic Moat, Uncertainty, Stewardship× Size, Concentration, Dependence on Capital Markets

× Stress Test Score ™× Our assessment of the bank’s ability to withstand credit losses. × Incorporates a bank’s loan mix, along with our analysts’ estimates of

underwriting prowess and future income. × Solvency Score ™

× Based on six key accounting ratios measuring capital adequacy, asset quality, earnings power, and liquidity.

× Each quarter, approximately 1,500 bank holding companies are ranked based on these metrics.

× Distance to Default× Market-based measure of financial health× Academically tested

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From Four Scores to Final Credit Rating

× Four scores map to a preliminary credit rating

× Each preliminary rating reviewed by Credit Committee

× Meet with analysts× Review inputs× Stress test model

× Each initiation accompanied by an Analyst Note explaining rationale

× Credit analysts and Credit Committee monitor individual scores for possible upgrades/downgrades

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Morningstar’s Credit Rating Model

× Fully transparent model-driven credit-rating methodology, showcasing the four pillars of our process

× Model functionality allows users to test the sensitivity of credit ratings to changes in underlying forecasts and inputs

× A full build-out of the forward-looking Cash Flow Cushion and graphical depictions of key credit-relevant metrics

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Morningstar Ratings: Where We Differ from the Agencies

Morningstar More Positive

Notch Difference

Notch Difference

Zimmer Holdings 5.5 KLA-Tencor Corporation 3.5CACI International, Inc. 5.0 Bristol-Myers Squibb Company 3.5Biogen Idec, Inc. 5.0 Applied Materials 3.0Thermo Fisher Scientific, Inc. 4.5 Oracle Corporation 3.0Xilinx, Inc. 4.0 CA, Inc. 3.0Amphenol Corporation 4.0 Johnson Controls, Inc. 3.0TRW Automotive Holdings Corporation 4.0 Owens & Minor, Inc. 3.0American Medical Systems Holdings, Inc. 4.0 AmerisourceBergen Corporation 3.0Stryker Corporation 4.0 ITT Corporation 3.0Molson Coors Brewing Company 4.0 AGCO Corporation 3.0St. Jude Medical, Inc. 4.0 Kohl's Corporation 3.0Maxim Integrated Products 3.5 Hormel Foods Corporation 3.0Church & Dwight Company, Inc. 3.5 Amgen, Inc. 3.0NVR, Inc. 3.5 Becton, Dickinson and Company 3.0

Based on difference between Morningstar rating and the average of S&P and Moody’s. Data as of 9/15/2010

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Morningstar Ratings: Where We Differ from the Agencies

Morningstar More Negative

Notch Difference

Notch Difference

Royal Caribbean Cruises, Ltd. -3.5 ThyssenKrupp AG -1.5Morgan Stanley -3.0 Casella Waste Systems, Inc. -1.5United Parcel Service, Inc. -3.0 Veolia Environnement -1.5Bank of New York Mellon -2.5 New York Community Bancorp, Inc. -1.5Coca-Cola Enterprises Inc. -2.5 Comerica Incorporated -1.5Pitney Bowes Inc. -2.5 Goldman Sachs Group, Inc. -1.5Sirius XM Radio Inc. -2.0 OfficeMax, Inc. -1.5Toyota Motor Corporation -2.0 Boyd Gaming Corporation -1.5Linde AG -2.0 SunTrust Banks, Inc. -1.5Deutsche Telekom AG -2.0 BB&T Corporation -1.5State Street Corporation -2.0 Citigroup, Inc. -1.5Automatic Data Processing -2.0 Weatherford International Ltd -1.5

Based on difference between Morningstar rating and the average of S&P and Moody’s. Data as of 9/15/2010

Morningstar Ratings: Where We Differ from the Agencies

Morningstar makes a High-Yield call

Morningstar Rating S&P Rating Moody's RatingAlcoa Inc. BB+ BBB- Baa3CBS Corporation BB+ BBB- Baa3CenturyLink, Inc. BB+ BBB- Baa3Sunoco, Inc. BB+ BBB- Baa3Telecom Italia SPA BB+ BBB Baa2Valero Energy Corporation BB+ BBB Baa2

Morningstar makes an Investment-Grade call

Morningstar Rating S&P Rating Moody's RatingActuant Corporation BBB- BB Ba2Clean Harbors, Inc. BBB+ BB Ba3Compass Minerals International, Inc. BBB- BB+ Ba2Kinetic Concepts, Inc. BBB+ BB+ Ba2Pioneer Natural Resources Company BBB- BB+ Ba1Range Resources Corporation BBB- BB Ba2

Ratings as of 9/15/2010

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Morningstar Ratings: Leading Indicator of Agency Moves

Company Morn. Rating Rating Date Agency Old Rating New Rating Change Date

Rayonier BBB+ 11/18/2009 Moody's Baa3 Baa2 4/26/2010International Paper BBB 11/18/2009 S&P BBB negative BBB stable 3/16/2010Pitney Bowes BBB 12/2/2009 S&P A BBB+ 8/5/2010Dr Pepper Snapple BBB+ 1/13/2010 Moody's Baa3 Baa2 3/9/2010Dr Pepper Snapple BBB+ 1/13/2010 S&P BBB- BBB 3/22/2010Starbucks A- 2/8/2010 Moody's BBB stable BBB positive 4/27/2010Starbucks A- 2/8/2010 S&P BBB BBB+ 8/10/2010Darden BBB+ 2/9/2010 Moody's Baa3 Baa3 positive 7/20/2010Sears Holdings BB 3/22/2010 Fitch B+ BB- 3/31/2010ArvinMeritor B 3/29/2010 Moody's Caa1 B3 7/9/2010Dynegy B- 3/29/2010 Moody's B2stable B2negative 4/7/2010Staples BBB+ 3/30/2010 S&P BBB BBB positive 7/28/2010Weatherford Intl. BBB- 4/5/2010 S&P BBB+ BBB 4/27/2010UAL Corp B 5/10/2010 Moody's Caa1positive B3 positive 8/2/2010Ford BB 5/24/2010 S&P B- B+ 8/2/2010Ford BB 5/24/2010 Fitch B BB- 8/6/2010Limited Brands BB+ 6/1/2010 Fitch BB BB+ 7/1/2010Cummins BBB+ 6/23/2010 Moody's Baa3 Baa2 7/13/2010Transocean BBB 9/3/2010 S&P BBB+ BBB 9/8/2010

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Analysis Across the Capital Structure

× We’re unique in that we can offer investors an opinion on both a company’s debt and its equity.

× We seek to highlight cases in which the equity offers a better risk/return trade-off than the debt, and vice versa.

× Our credit analysts work closely with our equity team to uncover such situations.

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Benefits of Analysis Across the Capital Structure

× Our primary focus is on the underlying business fundamentals× Competitive analysis helps us determine the Economic Moat × We formulate an explicit forecast of cash flows over the next five years× Scenario analysis helps us evaluate a wide range of possible outcomes

× From there we can evaluate the best investment opportunities for a given company× Bonds vs. stocks with strong dividend yields (LLY, PFE)× Investments that offer capital preservation vs. high return potential× Convertible bonds (ATU)× Higher risk, higher return opportunities in equity or high-yield bonds

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Credit Research and Ratings for Advisors

× Analyst commentary × Credit Rating Rationale× Financial Health× Capital Structure × Enterprise Risk

× Data × Four “pillars” of our framework× Key credit metrics× Annual cash-flow forecasts × Bond issues and related data (prices,

yields, maturities)

× Related Services× Feed of credit ratings and rating changes× Conference calls with analysts × Access to Research Liaison Desk

Advisor

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Credit Research Weekly

× Analyst Commentary × Rating Initiations× Rating Changes × Credit Trends and Model Changes× Credit-Relevant Research× Highlighted Issuers and Bonds× Bond Market Commentary× Complete Ratings List

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Full access to our extensive research capabilities:

× 1,500 in-depth research reports, with full 5-year forecasted financials× Interactive cash-flow models

× Full pro-forma income statement, balance sheet, cash-flow statement

× Scenario analysis× Access to 80 industry specialists and a team of 10 credit specialists× Actionable bond ideas× Weekly credit research report highlighting our best ideas, credit-rating

changes, new coverage launches, and other notable developments× Conference calls with our analyst team× Daily research notes on recent company activities× Annual forum where our clients connect with company management teams× Quarterly market outlook from a bottom-up perspective× Weekly sector updates that leverage our team approach to deliver cross-

industry insights

Credit Research and Ratings for Institutional Investors

Institutional

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Institutional Services: Actionable Credit ResearchInstitutional

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Institutional

Credit Research Pick List

× Our top bond picks by sector

× Bonds selected on a relative value basis

× Issuer- and Issue-level analysis

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Institutional Services: Access to Analysts and Cash-Flow ModelsInstitutional

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More Information

× For more information, including our detailed methodology document and white papers, please visit:× http://corporate.morningstar.com/US/asp/subject.aspx?xmlfile=374.xml&filter=2977

× Or contact:

× Haywood Kelly, CFASenior Vice President, Equity and Credit Research+1 312.696.6550 or haywood.kelly@morningstar.com

× Tricia Rothschild, CFASenior Vice President, Securities Research Business+1 312.696.6298 or tricia.rothschild@morningstar.com

× Heater Brilliant, CFADirector of Equity Analysis+312.696.6337 or heather.brilliant@morningstar.com